New Measurement Shows Licensing Restrictions Depress Wage Growth, Here’s The Solution

Topline: A new measurement tool has been introduced by researchers at the Mercatus Center for tracking occupational licensing across states. States and occupations with the greatest licensing restrictions also have the weakest wage growth. The data will be useful for policy analysts and researchers alike to benchmark states and advocate for lower barriers.

You Can’t Improve What You Can’t Measure

Thanks to a new measurement tool developed by Patrick McLaughlin’s team at George Mason University’s Mercatus Center, we have a measure of licensing restrictions in states and occupations. Economists have long viewed these restrictions as roadblocks to competition and wage growth, but lacked reliable and comprehensive ways of measuring them.

McLaughlin remarked that “this dataset, like all the data that we produce, represents an advance in our ability to measure policy. Better measurement leads to better research insights, and we ultimately believe that those insights will lead to better policy. The old adage applies here: What gets measured, gets managed.” That’s arguably why government has become so complex—layers keep getting added on since the difficulty in measurement makes accountability tough.

We can see how states perform with one another. Perhaps not surprisingly, California ranks the worst, followed by Ohio. And, these differences are not just driven by the fact that California and Ohio have large populations and, therefore, more regulation. For example, if you divide occupational licensing restrictions by total restrictions for each state, I obtain a correlation of 66% between the two, meaning that states with more licensing restrictions also have more regulation overall.

What states perform the best? Idaho, Nevada, South Dakota, Montana, North Dakota, and Arizona have the least restrictions. Arizona is an interesting example because it ranks high in gross domestic product (GDP), whereas these other low-licensing states have much lower GDP. That’s not by chance: thanks to Doug Ducey’s efforts, Arizona passed a bill that recognizes out-of-state licenses, allowing many people to obtain their licenses without the traditional barriers.

One way of exploring the economic ramifications of these licensing restrictions is by linking them with wage growth. We can see that the occupations in states with lower earnings growth between 2016 and 2019 are the same states and occupations with more licensing restrictions in 2020. In fact, the correlation between the two is -0.18, which is fairly strong given all the other factors at play.

These results are consistent with economic research. For example, University of Minnesota Professor Morris Kleiner, one of the pioneers in this area, remarked that “overall occupational licensing raises wages between 8 to 18 percent depending on the time period and the national data sets that are used in the analysis. Occupational licensing also reduces employment

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University Heights firefighters agree to wage freeze as city deals with pandemic finances

UNIVERSITY HEIGHTS, Ohio — The city and its firefighters union have come to a contract agreement in which the International Association of Firefighters Local 974 agreed to a wage freeze for the first year of the three-year deal. City Council agreed to the new contract during its Zoom meeting held Monday, Oct. 19.

With the city facing uncertainty as to its tax collections in a year in which COVID-19 has played havoc with communities’ budgets, Mayor Michael Dylan Brennan was grateful for the union’s consideration.

“Everybody is rising to the occasion during this pandemic,” Brennan said. “If we could give them raises, we would give them, but we can’t commit to that right now, and the fire union understands that. They look out for us every day in their capacity as firefighters, and they were looking out for us with this (agreement).

“It means the world to me. It’s not typical for a union not to seek a raise, but they understand it. They understand what’s going on in the community.”

The city and the union plan to get together next summer, by June 30, when the deal’s first year expires, and attempt to come up with a satisfactory amount for raises for the second and third year of the agreement. “We’ll pick it up again next year when we have a better idea of where we are (financially),” Brennan said.

It is the first of four contracts the city has to hammer out with its unions. Still to come are agreements with police officers and police administrators, and public service department workers. Brennan said he would not negotiate via the press and state whether he would ask the other unions to accept a wage freeze, but usually union agreements within a city are similar, which likely means that other unions will also be asked to accept a wage freeze for the first year of their deals.

“We’re appreciative of what the firefighters did and we hope the rest of our employees understand the situation,” Brennan said.

Meanwhile, council also approved Monday pay for city employees who were furloughed four hours per week, each Friday beginning in June, for 16 weeks, as the city attempted to save money. In all, council approved $44,682 for the employees. Brennan said he felt it was important that employees get paid for the time they missed due to something that was not their fault.

“They all worked fewer hours, but they all completed their work every week,” he said. “It’s important for us to stand by them, just as they stood by us and worked hard for us.”

Brennan said that firefighters were also prepared to take less, “to do something in solidarity” with their fellow, non-union employees. Firefighters were not furloughed, but Brennan said it was another example of the firefighters understanding of the city’s financial situation.

The firefighters did, as part of the new contract, receive a new vacation tier for those who have served with the department at least 24

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